Italian bond markets are rallying, Italian bank stocks are up, and safe-haven US Treasury bonds are plunging as rumors of a rift between the populist leaders of Italy's Five-Star and The League movements prompts hopes that a 'worst case scenario' is off the table.
There is still no official proposal from technocrat Cottarelli for a second day, suggesting elections most likely outcome.
The head of state met with premier-designate Carlo Cottarelli, 63, a former International Monetary Fund executive, on Wednesday morning for informal talks, but no list of ministers was unveiled after the encounter. Cottarelli is awaiting developments because the possibility of a political government has emerged, according to a statement cited by newswire Ansa.
But the urgency of a new election is seen differently from the two leaders as Bloomberg notes, signs of a rift between the populist parties may reflect their differing fortunes after the March 4 inconclusive election and their subsequent failure to enter government.
While Five Star support is down, the League has surged into second place in polls, strengthening Salvini's hand in any subsequent coalition negotiations.
As a reminder, The League (Lega) is more anti-immigrant (akin to Trumpian politics) and Five Star is more socialist (akin to Bernie Sanders politically) but for now immigration remains the biggest issue for Italy.
The League leader Salvini said he hoped for elections “as soon as possible but not at the end of July because there are the sacred holidays of Italians and seasonal workers.”
He did not indicate whom the League should govern with, saying: “Ask Mattarella”
Salvini wrote a joint government program with Five Star, but he could return to an alliance with the center-right including ex-premier Silvio Berlusconi’s Forza Italia party, a force which is more pro-European.
Five Star leader Luigi Di Maio swung between government and election mode within less than 24 hours.
Bloomberg reports that Di Maio told a rally in Naples on Tuesday night he’s ready to cooperate with Mattarella to solve the political crisis. Then on Wednesday he called for either a government led by law professor Giuseppe Conte, the previous populists’ candidate, or immediate elections, before saying he would not make an electoral alliance with the League, as Five Star does not make such deals.
Since analysts have flagged that an alliance between the two parties would be the worst-case scenario for markets, this potential rift has prompted some hope - and the result of all that is a market rebound.
“Just who Salvini goes into the next elections with is vital,” said Giovanni Orsina, professor of government at Luiss University in Rome.
“If he goes with Forza Italia, there’ll be an attempt to reconcile the establishment and the protest vote. If he goes with Five Star, it will be a head-to-head conflict with the establishment.”...